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Reproduced with permission of Internationales Handelsrecht (6/2006) 228-238, published by Sellier, Eruopean Law Publishers

excerpt from

Some introductory remarks on the CISG [*]

Prof. Dr. Peter Huber, LL.M. (London), Mainz

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IV. "LEGAL SCOPE OF APPLICATION"

Most of the questions that can arise with regard to a sales contract will be addressed and answered by the CISG. There are, however, certain issues which the CISG does not (want to) govern although they can be relevant with regard to the conclusion and performance of sales contracts. It is therefore necessary to draw the line between the issues that are governed and those issues that are not, or, in other words, to define the "legal scope" of the CISG.

1. Basic principle

The starting point for defining the legal scope of application is Art. 4 CISG:

"This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold."

The first sentence of that provision gives a positive definition of the legal scope of application of the CISG: It governs the formation and the rights and obligations of the parties. As a rule of thumb, one can assume that the terms "formation" and "rights and obligations of the parties" have to be understood as covering everything that the Convention actually deals with, in particular in Art. 14-24 CISG and Art. 25-88 CISG but also in Art. 11-13 CISG (concerning form which could also be regarded as a matter of "formation" in its widest sense).

From that positive definition of the legal scope of the CISG one can deduct what is actually not governed by the Convention, i.e. those issues which neither belong to formation nor to the rights and obligations of the parties. By way of an example the second sentence of Art, 4 CISG gives two examples of areas which are not governed by the Convention: validity (lit. (a)) and the transfer of property (lit. (b)). A further exception is contained in Art. 5 CISG (personal injury and death). These lists are not exhaustive. Other matters may be outside the scope of the CISG without being named in Art. 4 CISG, for instance the limitation (prescription) of claims.

The interaction between the CISG and domestic remedies may lead to intricate questions.[16] Some aspects will be dealt with in the following part.

2. Specific issues

a) Validity

aa) General rule

At first sight, the treatment of validity 1ssues in the Convention seems to be rather straightforward. The second sentence of Art. 4 CISG actually names the "validity of the contract or of any of its provisions or of any usage" as one of the examples not governed by the Convention. On closer analysis, however, certain problems may arise. The first issue to be addressed is how to interpret the terms used in Art. 4 CISG. It is submitted that in line with the rule of Art. 7(1) CISG, these terms should be given an autonomous" "Convention-style" interpretation.[17] In other words, "validity" and "formation" do not mean what (the applicable) domestic law says, but have to be interpreted against the background of the CISG.

Secondly, one has to bring the validity exception in line with the positive statement that "formation" issues (which may on a broad interpretation also be regarded as affecting the validity) are governed by the CISG. The predominant opinion correctly assumes that "formation" in the sense of the CISG is the so-called "external consensus", i.e. the mechanics of how the contract is concluded (e.g. by offer and acceptance).[18] This is what Art. 14-24 CISG actually deal with. Other matters that may affect the validity of the contract are, on the other hand, regarded as matters of "validity" which fall under the exception of Art. 4 lit. (a) CISG and are therefore not governed by the CISG. This is for instance true for the so-called "internal consensus", i.e. incapacity, fraud, mistake and within certain limits [19] also mistake and misrepresentation. Further examples would be validity issues arising from legislation such as legal prohibitions, ordre public, export bans etc.[20]

bb) Error concerning the quality or the characteristics of the goods

A different situation arises, however, when the buyer's error relates to the quality or the characteristics of the goods. Domestic legal systems will often allow the buyer to rescind the contract if he had been induced to conclude the contract by an error concerning essential characteristics of the goods. At first sight, this type of remedy seems to fall under the validity exception as it is concerned with the "internal consensus" and not with the "external mechanism". Several authors indeed take this position and argue that the domestic remedies for an error concerning the characteristics or the quality of the goods should remain applicable by virtue of Art. 4 lit. (a) CISG.[21]

It is submitted, however, that the buyer may not have recourse to the domestic remedies for errors concerning characteristics or qualities of the goods for two reasons: The first reason is a policy argument: In many cases where the goods [page 231] have been defective from the outset (i.e. already when the contract was concluded) there will also have been an error of the buyer in that respect (otherwise he would probably not have bought the goods, at any rate not for the normal market price). If one allowed the buyer to have recourse to the right to rescind under the applicable domestic law, the restrictions that the CISG imposes on the right to avoid the contract for defects of the goods (e.g. the notice regime under Art. 39 CISG, the exception in Art. 35(3) CISG, the fundamental breach requirement in Art. 49(1) lit. (a) CISG) could easily be undermined. This would not only lead to inadequate results but also impair the objective of a uniform interpretation of the Convention (cf. Art. 7(1) CISG). The second reason is a dogmatic one: If one accepts the submission that the term "validity" is not to be construed according to the standards of the applicable domestic law but as an autonomous concept, one will have to conclude that "validity" matters in the sense of Art. 4 lit. (a) are only those validity issues that are not positively governed by the Convention (cf. Art. 4 CISG, first sentence), i.e. that do neither concern the formation of the contract nor the rights and obligations of the parties. The question, however, of whether the buyer can rely on the defects of the goods in order to get out of the contract is one of the core issues of the system of remedies of the buyer (Art. 45 ff. CISG, in particular Art. 49 CISG). On should therefore follow the view [22] that the buyer cannot rely on domestic remedies for errors on the quality or characteristics of the goods in order to avoid the contract. To put it in other words: This issue is not a "validity" issue in the sense of Art. 4 lit. (a) CISG.[23]

cc) Fraud

A different situation arises, where the buyer has been induced to conclude the contract by fraud. In these cases the predominant opinion regards the domestic fraud remedies as applicable, even if the fraud related to the characteristics of the goods.[24] It is submitted that this is correct for the policy reason that the fraudulent seller does not deserve the protection that the CISG rules may grant him.

dd) Errors concerning the other party's ability to perform

Domestic remedies in cases where one party erroneously trusted in the other party's ability to perform the contract should be treated in the same way as errors concerning the characteristics of the goods: As this issue is addressed by the Convention in Art. 71 CISG, one should not regard it as a "validity" issue in the sense of Art. 4 lit. (a), but as governed by the Convention under the first sentence of Art. 4 CISG ("rights and obligations"). Domestic remedies for such cases should therefore not be regarded as applicable.[25]

b) Consideration?

Common Law systems know the requirement of "consideration", i.e. the rule that in principle the contract does not simply arise from the mere agreement of the parties but that the promising party must have received some "consideration" (e.g. profit, gain) for its offer. It is submitted that the domestic consideration requirement cannot be applied to contracts underlying the CISG. In fact, both the formation rules (Art. 14ff. CISG) and the rules on form (Art. 11 ff., 29 CISG) show that the Convention does not know the consideration requirement. One should regard this as a positive statement that consideration is not necessary. It would therefore not be correct to treat the consideration requirement as a "validity" issue and submit it to the domestic law according to Art. 4 Lit. (a) CISG.[26] This is, however, what one U.S. court [27] has done, while another U.S. court held that under the Convention, a contract for the sale of goods may be modified without consideration for the modification.[28]

c) Property

According to Art. 4 lit. (b) CISG the effect which the contract may have on the property in the goods sold is in principle not governed by the CISG. This means in particular that the question of how property in the goods is transferred to the buyer (e.g. by a separate agreement as in German law or simply with the conclusion of the sales contract as for instance in French law) will not be governed by the Convention but by the applicable (domestic) law, i.e. in most countries by the lex situs.[29] What is more, the proprietary aspects of security interests in the goods sold (e.g. retention of title) will in principle be governed by the applicable (domestic) law.[30]

d) Personal injury

Art. 5 CISG states that the Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person. The purpose of this provision is to avoid conflicts between the CISG and those domestic legal systems where product liability is not based on tort, but on contract.[31] Its application is, however, not limited to cases where the law of such a state is applicable. The provision generally excludes [page 232] claims for personal injury or death from the Convention if they were caused by the goods. The latter requirement probably means that cases where the buyer's injury does not result from (a defect of) the goods but from the seller's behaviour while delivering the goods will not fall under the Art. 5 CISG exception and will therefore be governed by the CISG.[32]

If the buyer himself is not injured, but if he is liable to his sub-purchasers for personal injury (or death) caused by the goods, the question will arise whether the buyer's recourse for damages against the seller will be excluded under Art. 5 CISG or not. It is submitted that the CISG should not be applied in those cases.[33] In fact, Art. 5 CISG explicitly covers "any" person's injury; it is therefore not limited to injuries caused to the buyer.[34]

If Art. 5 CISG applies it will be for the private international law of the forum to designate the applicable law (and to decide whether it wants to do so by using the contractual conflicts rule or by using the conflicts rule for torts).

e) Tort

Tort claims of the buyer against the seller can raise difficulties in two respects: First, there is the general issue of the interaction between contract and tort (a). Secondly, a specific issue arises with regard to the EC Product Liability Directive (b).

aa) Contract and tort

Every legal system has to address the difficult question in how far a buyer who is damaged by the goods sold should be able to resort to tort remedies besides his contractual remedies. The answers may differ: One may regard the contractual claims as exclusive and bar tort remedies altogether (in order to safeguard the contractual requirements against more lenient tort rules), one may admit tort claims but submit them to the stricter contractual requirements (e.g. concerning the obligation to give timely notice of the defects) or one may simply allow tort claims ''as they are", i.e. without any interference by contract law. The solution to this issue will usually depend on how the contract rules and the tort rules within that legal system interact with each other, in particular on whether tort law is "needed" to fill inadequate gaps that contractual liability might leave.

If the sales contract is governed by the CISG, the matter is even more complicated because the international contractual regime of the CISG would in most cases face a domestic tort system (i.e. the tort law that the private international law rules of the forum regard as applicable), Any concurrence between the sales law of the CISG and a (usually domestic) tort system will therefore run a high risk of friction and discrepancies.

In so far as claims for personal injury or death in the sense of Art. 5 CISG are concerned, the matter is rather straightforward: As the CISG does not govern those claims at all, it should not have a say about the admissibility of domestic tort rules either.

Claims for damage to the buyer's property are more difficult to assess. The starting point is that as a rule those claims can be based on the damages rules of the Convention (on the understanding, of course, that the requirements of Art. 45, 74ff. CISG are met). The crucial question then is in how far the buyer may also rely on the applicable (domestic) tort law for those claims. This may for instance be advantageous for him if he has not complied with the notice requirement of Art. 39 CISG.

The predominant opinion seems to be that tort claims under domestic law are fully admissible and not subject to any (analogous application of the) restrictions of the CISG because tort claims are based on policy considerations which are different from the ones which underly contract law.[35] Some authors, on the other hand, argue that this might lead to a circumvention of the specific policy considerations of the CISG, in particular with regard to the notice requirement (Art. 39, 43 CISG), and that it might impair the uniform application of the Convention (Art. 7(1) CISG!) as it would be for the applicable (domestic) law to decide whether it wants to admit tort claims next to contractual claims.[36]

bb) EC Product Liability Directive

The EC Product Liability Directive 85/374/EEC [37] has given rise to some controversy with regard to its interaction with the CISG. The practical relevance of the dispute will probably be rather limited as most cases that fall under the Directive will not fall under the CISG by virtue of Art. 2 lit. (a) CISG.[38]

The debate centers on the question whether EC Directives prevail over the CISG as "international agreements" in the sense of Art. 90 CISG. In the author's opinion this is not the case because EC Directives need to be transformed into national law by the Member States and because they usually leave the Member States considerable room for regulating the details so that they cannot be assimilated to the type of international conventions that Art. 90 CISG has in mind.[39] It is submitted therefore that the national rules that transpose the EC product liability directive should not be given preferential treatment under Art. 90 CISG. Their application will therefore depend on the position one takes with regard to the general interaction between the CISG and domestic tort law (cf. a) above). [page 233]

f) Precontractual liability

Many legal systems impose certain duties on parties who enter into negotiations, even before the actual contract is concluded, for instance duties to inform, duties to protect the other side's health, duties to cooperate etc. These types of duties are often labeled "culpa in contrahendo". They may be sanctioned on the level of tort law or by an analogy to the contractual system of remedies. If the negotiations lead to a contract of sale that is governed by the CISG, the question will arise of whether such precontractual liability under domestic law can be invoked by the injured party or whether this is excluded by the Convention.

It is submitted that as the CISG does not provide a regime for the breach of precontractual duties, those domestic rules should in principle be applicable irrespective of the fact that the contract underlies the CISG. It is arguable, however, that there may be exceptions to that principle: In particular, if the seller has (innocently) induced the buyer to conclude the contract by not (correctly) informing him about certain defects of the goods and if the applicable domestic law sanctions this behaviour as breach of a precontractual duty, there are good arguments for letting the CISG prevail over the domestic law.[40] In fact, this scenario squarely falls into the Convention's system of remedies for non-conformity. It would not be a fortunate result if the specific policy considerations of the CISG (e.g. the notice requirement or the fundamental breach doctrine) could be undermined by a more lenient domestic regime of culpa in contrahendo. The situation in fact very much resembles the one where the buyer relies on a mistake in order to rescind the contract and where -- according to the view taken here -- a recourse to the domestic law of mistake should also be barred.[41]

g) Limitation

The CISG does not govern the issue of limitation (prescription). There is a UN Convention on the Limitation Period in the International Sale of Goods of 1974 (as amended by the Protocol of 1980) [42] which has not been ratified by all Contracting States to the CISG.[43] The requirements for the application of the UN Limitation Convention are similar, but not identical to the CISG.[44]

If the UN Limitation Convention is binding for the court deciding the dispute and if the requirements for the application of the UN Limitation Convention are met, this Convention will apply. If this is not the case, it will be for the private international law of the forum to designate the applicable law.[45]

h) Set-off

It is submitted that set-off is not covered by the CISG and that it is neither possible to deduct from Art. 84(2) CISG a general principle (Art. 7(2) CISG) [46] which could give enough guidance to regulate the intricate questions every law on set-off has to answer.[47] It will therefore be for the private international law of the forum to designate the applicable rules to set-off. [page 234]

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FOOTNOTES

* The present article is based on the introductory chapter of Peter Huber / Alastair Mullis, The CISG -- A new textbook for students and practitioners, which will be published by Sellier, European Law Publishers in spring 2007.

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16. See for instance Ferrari, The Interaction between the United Nations Conventions on Contracts for the International Sale of Goods and Domestic Remedies (Rescission for Mistake and Remedies in Torts), to be published in Rabels Zeitschrift für ausländisches und Internationales Privatrecht (RabelsZ) 2007.

17. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 4 Nr. 7; Ferrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 4 Nr. 6. t: But see also the differing opinions of Lessiak, Österreichische Juristenblätter (Ost.JBI.) 1989, 487, 492 f.; Hartnell, 18, Yale Journal of International Law (1993), 1, 45; U.S. District Court S.D.N.Y., 10 May 2002, <http://www.cisg-online.ch> Nr. 653 ("Geneva Pharmaceuticals Technology Group vs. Barr Laboratories").

18. (Austrian) Oberster Gerichtshof, 22 October 2001 and 6 February 1996, <http://www.cisg-online.ch> Nr. 613 and 224; Ferrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 4 Nr. 15.

19. But see the issue of errors concerning the goods below.

20. Ferrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 4 Nr. 18 f.

21. Lessiak, Österreichische Juristische Blätter JBI) 1989, 487 ff.; Neumayer, Recht der Internationalen Wirtschaft (RIW) 1994, 99, 101 f.; see also Hartnell, 18 Yale Journal of International Law (1993), 77.

22. P. Huber, Zeitschrift für Europäisches Privatrecht (ZEuP) 1994, 585, 597 ff.; P. Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch, Art. 49 Nr. 22; Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 4 Nr. 13; Ferrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 4 Nr, 22 ff.; Honnold, Uniform Law für International Sales, 3rd ed. (1999), Nr. 240; Magnus, in: Staudinger Kommentar zum Bürgerlichen Gesetzbuch, Art. 49 Nr. 43; (German) Landgericht Aachen, 14 May 1993, <http://www.cisg-online.ch> Nr. 86. The Austrian Supreme Court may also have thought in this direction, see (Austrian) Oberster Gerichtshof, 13 April 2000, Praxis des Internationalen Privatund Verfahrensrechts (IPRax) 2001, 149, 151 f. = <http://www.cisg-online.ch> Nr. 576.

23. For a different line of argument leading to the same result see Ferrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 4 Nr. 26 ff.

24. Ferrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 4 Nr. 25; Magnus, in: Sraudinger Kommentar zum Bürgerlichen Gesetzbuch, Art. 4 Nr. 52; P. Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch, Art. 45 Nr. 23.

25. See Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 4 Nr. 13.

26. See in more detail Viscasillas , in: Ferrari / Fletchner / Brand, The Draft Digest and Beyond, p. 259 f., with further references; see also Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 16 Nr. 2.

27. U.S. District Court, Southern District of New York, 10 May 2002; <http://www.cisg-online.ch> Nr. 653 ("Geneva Pharmaceuticals Technology Group vs. Bart Laboratories").

28. U.S. District Court, Western District of Michigan, 17 December 2001, <http://www.cisg-online.ch> Nr. 773 ("Shuttle Packaging Systems vs. Tsonakis").

29. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 4 Nr. 18.

30. (German) Obetlandesgericht Koblenz, 16 January 1992, <http://www.cisg-online.ch> Nr. 47; Federal Court of Australia, South Australian District, Adelaide, 28 April 1995, CISG Online Nr. 218; U.S. District Court, Northern District of Illinois, 27 March 2002, <http://www.cisg-online.ch> Nr. 696 ("Usinor Industeel vs. Leeco Steel Products").

31. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 5 Nr. 1.

32. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 5 Nr. 5.

33. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 5 Nr. 7; Farrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 5 Nr. 8. But see the decision of (German) OLG Düsseldorf, 2 July 1993, <http://www.cisg-online.ch> Nr. 74 where the court may have been inclined to apply the CISG to such claims (albeit without having to decide the issue and without actually discussing it so that the precedential value of the decision seems to be rather doubtful).

34. Farrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 5 Nr. 8.

35. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 5 Nr. 10; Farrari, in: Ferrari / Fletchner / Brand, The Draft Digest and Beyond, p.96, 103 f.; Farrari, in: Schlechtriem / Schwenzer (4th German ed.), Art. 5 Nr. 12; Magnus, in: Staudinger Kommentar zum Bürgerlichen Gesetzbuch, Art. 5 Nr. 13. This was also the position of the German courts concerning the predecessor of the CISG (ULIS): (German) Bundesgerichtshof, 28 November 1994, Praxis des Internationalen Privatund Verfahrensrechts (IPRax) 1996, 124; (German) Oberlandesgericht München, 9 August 1995, Praxis des Internationalen Privatund Verfahrensrechts (IPRax) 1997, 38.

36. Herber, in: Festschrift für P. Schlechtriem (2003), p. 207 ff.; Honnold, Uniform Law for International Sales, 3rd ed. (1999), Nr. 73.

37. Official Journal 1985 L 210 p. 29.

38. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 5 Nr. 11, Note 25.

39. P. Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch, Art. 90 Nr. 2. For a more detailed analysis -- also with regard to other EC Directives where the overlap may be more significant -- Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 90 N. 12 ff. But see also the differing opinion of, for instance, Siehr, in: Honsell, Kommentar zum UN-Kaufrecht (1997), Art. 90 Nr. 7.

40. P. Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch, Art. 45 Nr. 24 f.; Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 4 Nr. 23.

41. The situation is different, of course, where the seller acts fraudulently. In these cases, he does not deserve the protection afforded by an exclusive application of the CISG.

42. For a commentary see Müller-Chen, in: Schlechtriem / Schwenzer, Commentary, Annex II.

43. For the status see <http://www.uncitral.org>.

44. See in more detail Art. I ff. CISG. Limitation Convention, in particular Art. 3(1) CISG which is similar to Art. 1(1) CISG.

45. See Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 4 Nr. 21 with further references.

46. But see also the differing view of Magnus, in: Staudinger Kommentar zum Bürgerlichen Gesetzbuch, Art. 4 Nr. 47.

47. Schlechtriem, in: Schlechtriem / Schwenzer, Commentary, Art. 4 Nr. 22a.

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